Taxi Industry: Pros & Cons Of UBER And Other E-Hail Apps

The personal transportation industry has undergone drastic changes in recent years with the introduction of application-based taxi and car service hailing systems. (To learn more about useful smartphone apps see: Money-Saving Smart Phone Apps.) New industry entrants, like UBER, have made structural changes to an old industry that functioned much the same way it did decades ago, with individuals in need of a cab having to either physically wave at a taxi at the street corner or call a local car service to reserve a car at least half an hour prior to the pickup time. UBER and its competitors have made it possible to secure a car or taxi from a smartphone from any location. The following will address most of the pros and cons of these E-Hail services, like UBER.

PROs

Customers: Instead of chasing down a taxi on a metropolis street or hopelessly praying for one to miraculously pass by their location in the suburbs or calling and waiting half an hour for a car service, E-Hail app users are now able to hail a car from any location (e.g. their apartment) and have a car ready within minutes. In major cities like New York where the taxi industry is regulated, most cars are clean and well-maintained, late- model cars that are chauffeured by professional drivers and that have the proper commercial insurance coverage. Because the passenger's credit card is linked to the E-Hail account, no cash changes hands, which means that payments don't have to be processed immediately. Upon arrival at the destination, the driver brings the ride to a halt and the passenger can simply walk out the car. For passengers with expense accounts, an email receipt is sent, and life gets much easier because there’s no need to collect and track paper receipts. Once drivers accept the assignment to transport passengers, the passengers are able to track the drivers’ position and route, and communicate with their drivers if necessary. A driver only learns the passenger’s destination when the tallying of the fare starts, and thus, this takes care of the problem of being refused access to a taxi when traveling to undesirable parts of town. Unprofessional drivers are weeded out because passengers get to rate the driver’s performance, and a consistently low rating will force a driver out of UBER or its competitors. In many cities and states like Los Angeles with less stringent regulations (as compared to New York), average citizens can provide the UBER service; that increases the number of drivers, and makes more cars available. All the above and more foster a positive experience for UBER customers.

Drivers: Safety is the most important advantage for drivers working with UBER or other E-Hail services. Because the transaction is cash-less, a driver needs not worry about unpaid fares and needs not carry any sizeable amount of cash that might entice a robber. Unlike Yellow Cab taxi drivers who work by 12- hour shifts or black car drivers who are scheduled by dispatch, UBER and other E-Hail drivers enjoy greater freedom and flexibility. Drivers can log in and off the system anytime and can choose to strategically allocate their work hours and efforts in any manner that best meets their goals and circumstances. Drivers can avoid the expensive taxi rental leases by acquiring their own vehicles; that means more profit for drivers, all else being equal. Drivers are also spared the stress caused by favoritism and office politics, because the application renders dispatchers irrelevant. Rude, aggressive and disruptive passengers are also weeded out the E-Hail network because, in the same way that passengers can rate their drivers, drivers can rate their customers, and consistently low ratings or reports of unsafe behaviors towards drivers can cause de-activation of an account by UBER and its competitors.

Industry: UBER and its competitors occupy a very valuable space in the personal transportation market -- that is, between the traditional Yellow Cab taxi and the black car or limousine service. UBER provides most of the benefits that are offered by these two services, while reducing most of the difficulties that must be dealt with, when using either of the two. UBER and other E-Hail application services have created more competition, increased the supply of cars and drivers in the market, and provided a supply of cars to the outer neighborhoods of major cities and in the suburbs.

CONs

Customers: Though there are hardly any downsides for customers who enjoy greater access to safer, more stylish, transportation, in more reliable cars -- all at the touch of an app on a smartphone, there are a few that may come to mind. “Surge pricing” for UBER, or “primetime pricing” for its main competitor, Lyft, is controversial and a major annoyance for most customers. To explain, “surge pricing” is a method of pricing in the free market that involves the raising or lowering of prices, or in the case of UBER, cab fares, depending on supply and demand -- which means specifically, for UBER customers, how many cars are available (supply), and how many passengers want to ride in them (demand). Sometimes prices for UBER services, depending on the intensity of demand, are increased by a certain percentage, and at other times they could even be doubled or tripled, and these fare hikes take effect during periods of high demand for cars (e.g. rush hours, dates of concert events, and during rain and snow storms). (To get insights into some key pricing strategies, see: 4 Pricing Strategies That Increase Your Spending.) Another con is that, with such cheap prices and readily available cars, customers get into the habit of taking a car for very short distances instead of walking, and the costs can add up quickly. Also, although UBER in general is cheaper and more convenient than a local car service or limousine, trip cancelations by drivers can cause disruptions in the passengers’ plans (e.g. missed flights). Safety concerns have also emerged in many cities and states where the transportation industry regulations are lax and average citizens can easily enter the E-Hail network as service providers. Although this has a positive effect by increasing the supply of drivers, these drivers might not be as motivated, because of the easy access to the E-Hail network, to reach high standards of professionalism and safety.

Drivers: Low prices negatively impact drivers’ earnings. While the applications are hailed by customers as user-friendly, it is important to remember that drivers are the ones providing the service in the name of UBER and similar enterprises. In major cities like New York, drivers are encouraged by UBER to purchase late model cars that can cost upwards of 60 to 70 thousand dollars (for SUVs and luxury cars), and some drivers still rent cars weekly from third parties. They bear most of the costs associated with the service (e.g. fuel and repairs). The drivers therefore contribute greatly to the brand of UBER. Initially, drivers used to rely on the surge prices to make up for low fares (as compared to those for limousine or car services) and infrequent trips (as compared to those of taxis). However, with the continued intake of new drivers by UBER and its competitors, and their price competition, drivers’ average earnings are being pushed downward. This means that drivers have to work longer hours to earn an income comparable to what they would have earned a year or two years ago. Unfortunately, while this means that there’s a larger supply of drivers, longer hours behind the wheel will jeopardize the safety of both drivers and passengers. These conditions, coupled with customer trip cancelations, which can cause a driver to miss opportunities to make money during the busiest hours, can have a negative impact on drivers’ earnings and morale.

Industry: Price competition is destructive for any industry, even for one that is already providing an invaluable service and many value-added benefits to the market. UBER, Lyft and other E-Hail services promote to their customers the expectation of a first class limousine service for less than taxi prices at the expense of the drivers. Increasingly, UBER, Lyft (its main rival) and other E-Hail services are engaged in an intense battle to provide the cheapest service. Unfortunately, this battle is being fought on the backs of drivers, who bear most of the expenses. Ultimately, this can only add to the stress of drivers (just as it did in the Yellow Cab taxi enterprise), and this, if not corrected, will bring about poor service in the long term. UBER and other E-Hail services are directly competing with the existing taxi and limousine or car services for both customers and drivers. This has led to the drop in taxi medallion and black car prices in New York. That is good for drivers, but bad for the traditional taxi and car service groups.

The Bottom Line

The introduction of E-Hail apps like UBER has made it possible for users to arrange car transportation from any location using their smartphones, and has given them access to a whole new group of service providers -- entrants into the industry (drivers) who have stylish cars, and a level of autonomy. This new type of personal transportation provides all the benefits of traditional taxi services, plus extra conveniences, while removing many of the challenges that have been involved in the use of Yellow Cab and black car services. The use of these services has also introduced new rules that govern the way things are done -- in terms of pricing, and decision-making options for both drivers and passengers. (For example, drivers are able to rate their customers, and it is not possible for drivers to deny their services to passengers heading to an undesirable location.) A drawback, however, is that the flooding of the market with new service providers has created a level of competition that has reduced the market share of traditional taxi services and lowered the overall profits of drivers, who bear the brunt of the costs involved with this type of transportation.

Disclosure: The author of this article has an affiliation with UBER, Lyft and HailO.